Q3 M&A Update
- Through the third quarter, deal volume was down by 40% compared to the same period in 2021, but valuations have remained strong and are now at an all-time high.
- The divergence between transaction volume and valuations is in part due to interest rate hikes and the availability of debt along with record amounts of equity, capital, and competition for good assets.
- Longer term, M&A levels should remain healthy. The U.S. market’s stable fundamentals, growing demographics, low unemployment, and energy independence, relative to the remainder of the world’s economies, will drive investment.
- However, U.S. assets continue to look expensive to European and Asian buyers with weak currencies relative to the U.S. dollar.
Q3 Industry Update
- Industry participants report that the supply of raw materials is improving, and film and resin prices are starting to come down. Continuous shutdowns in China have created some supply chain uncertainty, but most factors driving packaging demand (everyday products like food, beverage, and personal care items) are less impacted by these interruptions. This should result in more stable and growing margins for packaging firms.
- Walking the Pack Expo in Chicago in October, it was clear that the packaging industry continues to innovate at accelerated speeds. The industry has proven to be resilient, finding ways to improve products with new designs and materials. It is also rapidly responding to consumer trends by improving materials, recycling technology, and reducing overall packaging volume. Packaging firms continue to automate at a rapid pace to reduce dependence on scarce labor.
- Packaging deal flow should continue at consistent levels as retiring baby boomers continue to attempt to exit before the next macro event.
Where Are Packaging Subsectors Valued? (EV/EBITDA)
The biggest drop in the TKO Miller proprietary indices was in the Corrugated & Paper Packaging sector – which has seen tremendous commodity volatility. Recovered fiber (OCC) values have been effectively cut in half from $78/ton to $40/ton, driven by lower box demand and increased mill capacity.
Source: TKO Miller's Proprietary Middle Market Flexible Packaging Index
Recent Packaging News
Packaging Machinery Shipments Increase with Further Growth Expected
New statistics show packaging and converting machinery shipments in the United States grew by more than 10 percent in 2021, and the trend is expected to continue for years to come. The value of domestic packaging machinery shipments hit $10.5 billion last year, a jump of 11.2 percent from 2020, according to the Industry Packaging Machinery report from the Association for Packaging and Processing Technologies. Shipments are also expected to increase at a compounded annual growth rate of 5.4 percent to hit $12.9 billion in 2027. Demand for packaging machinery is largely driven by the increase in consumer goods demand, rise in the adoption of automated packaging machines, and the development of energy efficient machines. [LINK]
U.S. Plastics Industry Seeing Steady Growth
The U.S. plastics industry is expected to continue growing as it recovers from a pandemic-related decline in 2020. The U.S. plastics industry also climbed from the country's eighth-largest industry in 2020 to No. 6 in 2021, based on the value of shipments. The report contained many other data points, including an increase in the number of people employed by the U.S. plastics industry. [LINK]
‘Cautious’ Purchasing Decisions Lead to Lower Resin Prices in September
North American prices for polyethylene and polypropylene resins continued a downward path in September, joined by engineering-grade polymers, polycarbonate, nylon 6, nylon 6/6 and ABS. Average selling prices for PE in the region were down 3 cents for the month, with prices for PP down 8 cents, according to buyers contacted recently by Plastics News. Improving supplies, softening demand, and feedstock trends were behind the price drops. [LINK]
Film and Sheet Ranking Rolls Past $41 Billion
One hundred and sixty-four North American Film and Sheet manufacturers are ranked in the Plastics News September special report. This group of processors had related sales of $41.1 billion, up 11 percent over last year. Of that, 60 percent are exclusive to film, while 20 percent deal only in sheet. Based on the survey submissions for this ranking, film producers had an average gain of 15 percent, which isn't surprising when looking at the double digit increases in material pricing over the same period.[LINK]
Flexible Packaging Market Performance vs S&P 500
Flexible Packaging Valuation Index
Source: TKO Miller's Proprietary Flexible Packaging Valuation Index
TKO Miller Completed Transaction | Q3 2022
Target: Pro-Label, Inc.
Target Headquarters: Appleton, WI
Acquirer: Labelink Products Inc.
Acquirer Headquarters: Anjou, Quebec
Target Description: Founded in 1994, Pro-Label is a market-leading supplier of labels used in the building products, food and beverage, and consumer products industries. Headquartered in Appleton, WI, Pro-Label utilizes 19 narrow-web flexographic presses to provide a diversified range of both pressure-sensitive and non-pressure-sensitive label applications.
Select Notable Packaging M&A Transactions | Q3 2022
Dazpak Flexible Packaging, a portfolio company of H.I.G. Capital, has completed the acquisition of Atlapac Corporation. Dazpak is a flexible packaging company that prints and converts a full spectrum of flexible packaging solutions. Atlapac is a flexible packaging and pouch converter serving the food and beverage, homecare, and healthcare end markets. The acquisition strengthens the combined companies’ ability to provide flexible packaging solutions and services in the Midwest and will accelerate Dazpak’s entry into new products and markets.
Berlin Packaging, the world's largest hybrid packaging supplier of glass, plastic, and metal containers and closures, has completed the acquisition of StyleGlass, a company that specializes in the decoration of glass packaging for the food, beverage, beauty, and pharmaceutical end markets. With this acquisition, Berlin Packaging will enhance its decoration expertise and expand its integrated services offering. StyleGlass is the 8th acquisition that Berlin Packaging has
completed in 2022.
Thunderbird, LLC, a hands-on team of professional leaders dedicated to building sustained business growth for American manufacturing companies, has completed the acquisition of Bright Plastics, a single-source for high precision plastic injection molding and contract manufacturing. The addition of Bright Plastics to the Thunderbird portfolio of manufacturing companies expands its injection-molding support for a range of industries, including medical, defense, aerospace, transportation, recreation, waste management, and telecom.
About TKO Miller
TKO Miller, LLC is an independent, advisory-focused, middle-market investment bank. With over 130 years of collective transaction experience, TKO Miller provides merger and acquisition and financial advisory services for privately-held and private-equity-owned businesses, with a special focus on family-and-founder-held businesses.
Flexible Packaging is one of TKO Miller’s core industry focuses, along with Consumer Products, Industrial Services, Manufacturing, Business Services, and Healthcare. After advising numerous flexible packaging and printing companies on M&A and financing transactions, TKO Miller’s professionals have developed deep industry knowledge and a broad contact network that accompanies their transaction expertise with privately-held companies.
TKO Miller aims to bring value to clients by combining outstanding people with a results-oriented, flexible approach to transactions. Our services include company sales, recapitalizations, asset divestitures, and management buyouts. TKO Miller has a generalist focus and has served clients in a wide range of industries, including manufacturing, business services, consumer products, and industrial products and services. For more information, visit our website www.tkomiller.com